Orica’s new boss ‘a good fit’

It’s easy to imagine
Ian Smith
champing at the bit to get started in his new job as chief executive of chemicals and explosives giant
Orica
.

Smith’s appointment was announced in October but with the incumbent,
Graeme Liebelt,
having time to run on his contract, the changeover won’t take place until the end of next month.

Smith, the former head of goldminer Newcrest, has watched Orica’s reputation crash as a result of all too regular reports of pollution breaches in NSW.

It was no surprise this past week when the Melbourne-based executive revealed that one of his first actions would be to seek a meeting with NSW Premier
Barry O’Farrell
and his Environment Minister, Robyn Parker.

Analysts and fund managers agree that rectifying Orica’s recent environmental record is the biggest challenge Smith faces in the short term, and he is right to make it a priority.

“They need to get on top of these issues at their operating sites as a matter of urgency," says Perpetual senior portfolio manager Matt Williams, whose firm owns 8.77 per cent of Orica.

Williams believes Smith is a good fit for the role.

“Generally, you’d prefer an internal appointment. I think it’s healthier," he says. “But in this case Ian’s a very positive hire and I think a fresh set of eyes and attitude in the company won’t hurt."

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While Orica is dealing with legacy issues at its Port Botany chemicals plant, its Kooragang Island ammonium nitrate plant near Newcastle, which supplies the NSW coal industry with explosives, has been the source of most concern.

In light of the $600 million to $700 million expansion the company has planned for the facility, one analyst (who declined to be named) says it is vital that Smith gets all “relevant parties" back on side.

“I think it would be quite important to meet with the Environment Minister, the Premier, etc, and try to put all of that behind them," the analyst says.

His next most pressing problem will be the underperformance of Orica’s mining consumables business, Minova.

Orica acquired Minova, which sells ground support and ventilation equipment, for $857 million in 2006 and beefed up the business with the $775 million purchase of Excel Mining Systems a year later.

But for all the hype about its complementary nature and position in emerging markets, Minova has never achieved the 18 per cent return on net assets (RONA) target set by Orica. Analysts have raised the prospect of Smith taking a write-down on Minova, but believe it’s more important for him to work out how to turn it around.

“The issue for him to assess is the whole framework of that business . . . and what Orica is doing to get it towards that 18 per cent RONA," Macquarie Group analyst John Purtell says.

Smith will also have responsibility for building a stronger presence as a supplier of explosives to the Pilbara iron ore sector.

But for all the apparent problems, the consensus is that he is inheriting a financially sound business.

“They’ve got a strong business globally and the outlook for the Australian explosives sector is positive, so they’re nicely linked in to that," Purtell says.